Two Questions to Ask Before Docking Employee Pay

One of your employees isn’t at work during their scheduled hours. Is docking employee pay allowed? The answer is maybe. There are two important questions you need to answer before you start subtracting money from an employee’s paycheck.

1. Is the Employee Non-Exempt or Exempt?

Non-Exempt, Hourly Employees

Let’s start with the non-exempt employee. In general, if a non-exempt (also called hourly) employee is absent, or misses part of a workday, you are entitled to dock the employee’s pay for the hours missed. But you must do so in line with your own employee attendance policy or the usual practice at your business, and as long as the resulting pay rate does not fall below minimum wage before payroll taxes.

Consistency is critical in these situations.

If you offer paid sick days, and the employee has enough hours to cover the missed time, you can’t refuse to pay those hours if the sick leave policy was followed. Similarly, if you typically do not dock pay for any employee absence of less than half a day, you cannot vary that practice with only certain employees.
Something else to keep in mind: It’s appropriate to expect hourly employees to use your timekeeping system properly. If you learn they’re routinely neglecting to punch in and out (or worse, having someone do it for them – “buddy punching”), you can discipline them through verbal or written warnings. You can’t however, dock their pay for any timekeeping mistakes they’ve made, such as forgetting to punch in or out.

Exempt, Salaried Employees

For exempt (or salaried) employees, the situation is more complicated. Because they are not covered under minimum wage or overtime rules, exempt employees are protected from having their pay docked in most circumstances.

Being paid on a “salary basis” means an employee regularly receives a predetermined amount of compensation each pay period. The predetermined amount cannot be reduced due to variations in the quality or quantity of the employee’s work.

With few exceptions, an exempt employee must receive the full salary for any workweek in which work was performed, regardless of the number of days or hours worked. This goes for docking pay for an employee being late, as well. Exempt employees who are late (or who need to leave work early – for a doctor’s appointment, for example) — cannot have their pay docked for missing a couple hours of work. Basically, if an exempt employee arrives at work, even if it’s for only 15 minutes, he or she must be paid for the entire day. You may choose to address the matter and discipline the employee, but you can’t dock their pay

2. Why Is the Employee Absent?

If the employee is salaried or exempt, there are still a few circumstances in which an employee absence or other events will allow you to dock pay.

Permissible Exempt Employee Salary Deductions:

Exempt employees do not need to be paid for any workweek in which they perform no work.

Exempt employees who are absent for a day or more for personal reasons other than sickness or accident. (Note that these deductions must be made only in full-day increments – not for partial-day absences.)

Exempt employee absences of a day or more caused by sickness or disability, if the company maintains a plan that provides compensation for loss of salary caused by sickness and disability and the employee exhausted his or her “bank” of leave.

Penalties imposed for violation of safety rules of major significance.

Unpaid disciplinary suspensions of one or more full days for breaking workplace conduct rules.

Partial weeks worked during the initial or final weeks of employment. For example, if Joe resigns in the middle of a workweek, pay him only for the days actually worked in that week.

In some cases, when a salaried/exempt employee has worked a reduced or intermittent work schedule under the Family and Medical Leave Act (FMLA). (You can convert a salaried employee to an hourly rate during the time he or she is on intermittent or reduced-workweek FMLA leave without destroying the person’s exempt status.)

Understanding which employee absences are allowable wage deductions will save you problems down the road. This is especially important if an exempt employee ever challenges his or her status and claims overtime, or an hourly employee alleges discrimination.

Be certain you’re upholding federal and state time and pay laws with TrackSmart Attendance. With this simple time and attendance software, your employees can request time off, and you can approve/deny it, track it and adjust work hours accordingly. Plus, you can create specific time-off banks for accurate time tracking with exempt and non-exempt employees.